tool store

Auto Parts & Accessories Retailers

Industry Insight

Date February 2020

Approximate net recovery on cost

Synopsis

Current trends

  • U.S. retail sales for motor vehicle and parts dealers increased 6.0 percent during the first two months of 2016 compared to the same period in 2015

Key statistics

  • Industry revenues: $52.7 billion
  • Major product categories: Brakes, mufflers, batteries, starters, alternators, pumps, oil, lubricants, additives, spark plugs, audio, accessories
  • Significant companies: Advanced Auto Parts, Genuine Parts, Auto Zone, O'Reilly Automotive, Pep Boys
  • Market share of top: The top four companies generate approximately 65% industry revenue
  • Recent sales trends: Manufacturers have made it more difficult for consumers to do repairs at home, which has hampered industry growth. However, low gas prices and an aging fleet have driven projected growth to 0.9 percent over the five years to 2015, according to IBISWorld.

Current sales trends may positively influence recovery rates: Several favorable recent trends have consumers and investors focused on the retail auto parts market. Auto parts chains are benefiting from low gas prices, which contributed to the 12 percent increase in vehicle miles driven during 2015 and the associated increase in car repairs. Add to that an aging vehicle fleet that is expected to continue to grow. The age of the average car or light truck is expected to rise to 11.6 years in 2016 (up from 11.4 years in 2014), according to market analytics firm IHS Automotive. In addition, the number of very old vehicles (i.e., 12 years and older) is expected to grow 15 percent by 2020. This growing portion of older vehicles is driving increased demand for replacement parts and repairs.

Auto parts retailer and market leader AutoZone is currently opening stores and hiring staff to get ahead of the upcoming peak driving season of May through October. In terms of recent performance, the company posted an increase of 5.3 percent for 2016 over the second quarter of fiscal 2015 (12 weeks), and domestic same store sales also increased 3.6 percent for the quarter. Publicly traded companies, including AutoZone, O'Reilly Automotive and Genuine Parts Company, managed to weather the recent decline in the stock market and were trading at or near their 52-week highs in April 2016. Additionally, the recent acquisition of Pep Boys by Icahn Enterprises is expected to producefavorable results as the company takes advantage of efficiencies created by folding the Pep Boys chain into its existing company, Auto Plus.

Carl C. Icahn, Chairman of Icahn Enterprises notes, "we are extremely pleased to add Pep Boys to the Icahn Enterprises family of companies and believe the acquisition presents excellent synergistic opportunities for Auto Plus, our wholly owned automotive aftermarket company; we believe that with our abundant resources and knowledge of the industry we will be able to grow this business and take advantage of consolidation opportunities, thereby benefiting customers, manufacturing partners and employees, as well as our shareholders."

These positive sales trends and increased consumer demand may ultimately drive higher recovery rates and sales capacity in appraisal analyses, which in turn would have a favorable impact on Net Orderly Liquidation Values.

Multi-faceted liquidation strategies yield highest recovery values: In order to maximize the gross recovery value, the liquidation strategy for an auto parts retailer/service center would include a portion of the inventory being sold through the retail stores/service centers, with a bulk sale through wholesale channels to liquidate the balance of the application-specific "hard parts" inventory remaining at the end of the retail sale. Over-the-counter non-application parts such as chemicals, waxes, tires, tools, wiper blades, batteries, etc. would be sold during the retail sale. The higher the percentage of total inventory sold through the retail stores, the higher the gross recovery on a blended basis. The highest recovering inventory categories on a blended basis would typically include chemicals/fluids, batteries, oil, wiper blades, tires and tools. The lowest recovering categories would include brakes, cooling and fuel system parts, ignition parts, hoses and belts and steering and suspension parts. Additionally, Gordon Brothers' recovery assumption would not include "core" values associated with re-manufactured parts.